tv Options Action CNBC May 19, 2019 6:00am-6:30am EDT
hello and happy expiration friday the guys, they're all getting set here at the nasdaq as they get ready, here's what's coming up on the big show. >> well, actually pretty nice little saturday. we're going to go to home depot. >> well, carter werth says that home depot's earnings next week will be anything but nice. when you see why the chart master is pressing sell, you might just too plus -- uber is racing back to its ipo price and options are officially trading on the stock. mike will explain how to get in on the ride without the risk and wall street is waiting for a
trade deal. >> so you're telling me there's a chance yeah >> maybe, but there is one stock that's just been spared from the turmoil. and dan nathan says this could be your best chance to buy it's time to risk less and make more the action begins right now. yes, it does happy friday 5:31 eastern time. good to see you. let's get right to it. we have a number of big box retailers that are on deck for their earnings next week home depot, lowe's, target, markets are a little scattered options on all of these stocks indicating moves between 3 and 5% after their earnings report, but that's not all the chart master says that one of these names is at risk of breaking down big time carter werth back at the plasma with the details and the name. >> home depot, it just doesn't act well as the technical expression goes.
i think there's risk to earnings home depot relative to the itb that's the home builders etf a lot of correlation and then the breaking down and i think that's the risk here, that there's a message of wisdom and price. the market is saying something let's look at a few more charts. so here's the chart itself again, we have this circumstance as is the case with so many stocks of head and shoulders bottom, but thefaltering here, one could look at it as, well, it's just back to support. my hunch is something else. that it's too much weakness. i would show you it this way the weakness has constituted a break in trend that bothers me. a little bit longer term basis there is the following issue there is our slight break in trend but most important when the stock made a new high, this is actually a slight new high above that, it couldn't make
relative high and it made a lower high and on this rally yet another lower high relative performance to the market has been tepid at best. that's another warning sign. so my thought is here that one should be cautious if one's long going into earnings with home depot and/or be short. >> thank you very much, carter see you back at the desk mike, what's the trade here? >> i think this is an interesting situation. in the space with home improvement retailers, i definitely prefer home depot over lowe's. they have always done better on a per square foot sales basis. they have a much higher concentration of sales to professionals, about 40% of revenues that's obviously a big benefit the thing is that i'm not really expecting stellar retail sales out of anybody coming out of this spring. we've had very poor weather. in some very hot real estate markets we've seen some evidence on the coast at least of some softening. i think that there is a possibility that they may actually disappoint here so although i like the stock
generally i do see a potential risk here to the down side the other thing you had mentioned essentially what the implied move was. >> 3 to 5%. >> it's 3% in home depot. >> 5% in lowe's. >> 5% in lowe's, that's exactly right. when you take a look at the two -- this is interesting lowe's reports after home depot. you would normally expect for it to get a read through after home depot reports. this is a situation where the home depot's option is not that expensive. june, the 190-180 put spread you spend 3.90 to sell the lower strike for 1.40. 2.50 net net if the stock lingers you're not going to see all of that premium get eviscerated right away you're not risking the full 2.50 i think this is a situation where things are looking precarious that's true for retail and probably for home depot.
>> it's interesting the markets come back a little bit this friday was not a great close. this friday things started to get nasty. mid week we caught a bid here. home depot is lower than it was last friday. i think carter's charts are telling. the fact that it's below the up trend from the december lows your guess is as good as mine is what they're going to report what are the expectations now that stocks are down, what, 15 bucks or something like that but this put spread, what mike is talking about is paying 2.50 very near the money with low volatility that's how you want to press this short in the market in my opinion. i like this setup and i really hate the relative poor performance. >> news about the two, they are so correlated and who i am depot has been the king winner and lowe's is an afterthought. last quarter home depot gapped down on the results and lowe's gapped up. that's part of the decision
process here gaps typically come in twos or threes >> yeah, and if we read something through, mike, to your point, the fact that lowe's reports after but yet has a higher implied move, i wonder if that's the market telling us something. to your point, we're not the weather show, but it's rained every day this year on the east coast it feels like. >> which is not typically good for these guys generally speaking you're going to see a lot of sales going into the spring season. not when it's raining all the time that's not just true on the east coast, on the west coast, too. if you have a position in lowe's and you are expressing consideration that that might not be that great, because the implied volatility is higher, that might be one of the situations where you're looking to sell some up side rather than sell down side. >> certainly listen, that's one story. trade has been the macro story for weeks now.
the trade turmoil is taking hold in a big way the s&p 500 finishing down for a second week in a row the dow hosting its first four week losing streak in three years. ouch but there is one name that could be escaping the trade war. dan, you're looking at ford? >> yeah. let's go back like a whole year ago when we started actually talking about tariffs. with our adversaries like china at the time, it was actually with some of our allies. it was with mexico and canada and obviously the eu and japan that was really a big issue for these automakers here in the u.s. this today we just got news or this week it started to leak out a little bit that the trump administration was going to delay the eu and the japan component on autos and those tariffs. then we got the announcement that mexico and canada, the steel and aluminum tariffs, are likely to also come off here so that's something i think that's been really weighing on
the auto names obviously the stuff that we're talking about as far as u.s. retail spending has also been something that's been affecting these guys i think with ford you want to go back late april when they reported their q1 results. the stock gapped up 11%. on the heels of strong suv and truck sales. look at that chart but it gapped up above $10 and showed good relative strength where we've had some volatility. i'm going to the six year chart from where it topped out at 18 bucks in 2014. carter's taught me one thing when i look at charts, i've got to connect a lot of dots, right, buddy. >> only one thing? >> well, the most important thing, connect as many dots as you want, right? in this scenario it's gapped up above the well defined six year down trend the way i think about it, what's the next catalyst we have on the
trade front. president trump is going to meet with president xi. >> in japan. >> in japan. if we get building sentiment, a stock like ford could benefit. keep that momentum this is an easy trade. we have a one year chart of implied volatility the options are pretty low with a $10 stock the options are very dollar cheap. i'm looking at june 28 expiration when the stock was trading at $10.40. you want to make a bet that this stock is going to break out again into late quarter in june. buy the june 28 $10.50 calls paying 30 cents. your max risk is 3%. break even is up 3.5 to 4% you can lose up to 30 cents. you have unlimited gains at $10.80 this is a ball cheap way to play for continued up side in ford.
>> therks goiy were going to be the name. >> 3% of the stock price under actually this is for a stock up more than 30% i think year to date so far. the other thing that's very cheap itself is the stock itself is trading seven times full year earnings estimates ebida. >> for a reason? >> that's totally fair, but often times when we see situations where stocks are very cheap and they continue to get cheaper, that's actually not true here. the stock has performed pretty well since the beginning of the year we are starting to see -- you know, i think a lot of people thought the old autos are going to be left for dead. >> i think the key is this is a trend. ford acts very, very well. if one were to look at structural autos, there is a big trend upwards, daimler, u.s., ford, g.m. picks up all the japanese like toyota, nissan,
many more, tesla cars has under performed the s&p five of the past six years over the past six years it's down 9%. structurally a global capacity that's too high and autos are a bad place to be. you've singled out one of the best trends. >> let's be clear, i stole this from "fast money" and you liked it the cheap options make it a pretty good way to play a contrarian move on something that we don't really know what's going to happen but we do have a catalyst in a little more than a month. i like making good risk/reward bets. >> really good stuff for everything "options action" check out the website. "options action".cnbc.com. an ipo is a specific
offering >> got it. >> if you've been waiting to get in on uber's ipo, mike khouw will tell you how to cash in on the trade. >> plus, calling all "options action"s fans. reach into your pocket, grab your phone and tweet us your question @"options action. if it's nice, we'll answer it on air when "options action" returns. ♪ ♪♪ ♪♪ ♪♪
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welcome back to "options action." happy friday it wasn't exactly an ipo but uber options did debut yesterday. the stock recovering some options finishing this week slightly higher. uber is still down 7% since the high when it went public it's a hot name. if you want to get into the ride, mike has a way for you to do it and maybe make a little extra carbon the side. he's over to the plas with his call to action. >> making a little extra carbon the side, that's the idea for a lot of people who are participating with uber. drivers, if you happen to own the stock, there might be a way for you to do that as well we're taking a look at the share price since the ipo. not a lot of history here. that's why you only have a couple jagged lines but it doesn't look particularly compelling actually, if you take a look at the other ride sharing company that ipoed earlier we could see potentially some weakness. it does seem now like these
unicorn ipos don't have a lot of gas coming out of it so the question we might want to ask ourselves is what is the options market providing for if you take a look and right now uber options are exceptionally expensive. when i was looking at them earlier today actually going out to july or so the at the money straddle was playing a range at 20% in either direction. the options are extremely expensive. generally speaking when options are expensive we want to look for ways to potentially sell them the other thing is i have a hard time believing the way the stock is, and maybe carter can speak about it based on other prior ipo history, that it will exceed the highs that we saw after the ipo. what can you do if you happen to have bought the stock since then and you're trying to make a little extra cash? one of the things you could look to do is sell a covered call you own the stock. i was looking at the june 43 calls earlier today. you could sell those for 3.50
bucks a stock. the idea is you're going to get to collect that premium between now and expiration the other nice thing that a trade like this will do is if the stock does happen to fall back, you still get to keep that premium. right now you're going to see any losses if the stock falls. this gives you awe little bit of 8% you can continue to do the strategy after the ones that you sell right now expire. we talked about a strategy very much like this one in lyft before they reported their first earnings after their ipo and that obviously helped out a lot. the stock was trading 60 bucks we sold the up side calls for about $4, now essentially you would own it effectively at 56 which is where the stock is trading. it helps alleviate the down side punishment. >> mike, thank you very much stay over there if you would dan, what do you think of that trade? >> really interesting. couple of things mike's telling us that the implied move over the next month
is 20% in the options market, that's pretty extraordinary for a stock that is obviously moving around since its ipo the idea of selling premium against a long stock is interesting. you could maybe do that like the july 45 fifty for no cost. that's one way to sell some premium against your long. really interesting, the options have been trading the same for two days and both days the most active strike has been january 21, 2021, 25 strike put. yesterday 7700 traded. today about 5,000 traded and they look like they're bought. that's maybe some holder who's been in the name as a private investor who's locked up. >> don't read too much into that trade, you're saying that's an early investor looking to
protect him or herself over here. >> you wouldn't have to protect yourself if you weren't worried. >> it's not a singular position. >> we talk about this unusual activity all the time. we have no idea what it means. two days the most active strike was the long dated and way out of the money put. >> some financial advisor said, you have all of this equity, the stock isn't doing well. >> they only say that if they're concerned. people don't do that otherwise, why would you hedge a great thing that's about to take off like what is it, meat? >> beyond meat. >> it's not meat hey, the reality that this broke deal price is never good if it's a group, lyft and uber were opening it gapped at 36 low, up to 44. the burden is there. >> i would definitely agree with carter on the long dated put
buys that we see here. you don't put those on unless you have some measure of concern. i think there's reason to be concerned. that expires a long way out so obviously somebody could be holding the stock for an extended period of time. if you're inclined to do that, this is another thing you can do every expiration look to sell some premium, that will help alleviate the down side risk and give you a yield especially if you don't think the stock will take off and i don't think it will. >> there is no cisco skid. that stock soaring on earnings this week. unfortunately, that's bad news for one of our traders we are live at the nasdaq market site there times square. there is much more "options action" right after this break (indistinguishable muttering) that was awful. why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh.
you're getting the right flight at the best price. what do you look for i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪ all right. we like to hold the traders accountable on this fine show so it's time to take a look at a couple of our open trades. last week dan said the trade war could cause panic at the cisco >> in the last ten years this thing its p.e. is getting right back up to the ten year highs at 17.5 times that is really rich for a
company growing like this. to me it's kind of priced for perfection here so the slightest best of murky guidance, i think the stock is going to outperform the 5% implied move to the down side the stock was trading at 53.25 you could buy it paying $1 buying one of the may 53 puts selling one of the 49 puts at 20 cents. >> cisco's earnings though as we know, surprised to the up side dan, what do we do now >> it was a bad call this trade expired worthless today. you didn't have much time to get out of it after the results on wednesday night. i was focused on the guidance. they err not feeling adverse effects from the trade war i was kind of surprised by that. again, the stock is still not cheap. it is getting back to those prior highs. i wouldn't really be chasing it here just a bad call. but it was risking 2% of the stock price to make that bearish
bet. >> in the sense that the objective is to find a moment in time where you're going to get paid or perhaps lose, but it did inflect. it just happened to inflect a long way meaning, the objective of finding an opportunity checked direction? okay >> good call a lot of honesty here. we're not just picking on dan. mike predicted electronic arts could head up heading into earnings. >> if we take a look at the last three earnings electronic arts, they have been an unmitigated disaster i'm kind of inclined to make the contrarian bet and not risk a great deal of money by looking at a calendar spled. this is implying an 8.5% move and what that's telling us is i'm looking to sell the may 100 calls for 1.90 and buy the junes for 3.50. >> e.a. moving in the right direction. not a bad call
what do you do now >> the whole idea is we wanted the stock to end up pretty close to the strikes that we selected, in this case 100 we spent $1.60 to put the trade on the mays rolled off. the junes we own are only worth 2 point upon $70 a near double. it was up a little more this week my inclination at this point would be to take your profits come monday. the idea here was to try to collect some premium, not necessarily spend it. >> really good options trade you have the direction right, too. if you think this is going to break out, you can turn it into a call spread again. mike's trade idea gave him a lot of optionality. up next, your tweets that's what i like to see, dan and the final call i don't know what's going on. i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis.
carter werth. >> home depot seller. >> look at the june 190, 180 put spread. >> ford june 28 weekly. >> good stuff there, guys. thanks for taking it easy on me as well. that does it for "options action." we'll see you next friday. "fast money" on monday the following program is a paid commercial presentation for total gym fitness. [music] everybody work out. feel the energy. build a better body. the best you can be. another body easy as 123. oh. ahh. better body as easy as 123 with total gym.